By Hanna Roos and Kavan Bakhda

Hong Kong approved last week the awaited Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 to permit third party funding of arbitration, as well as supporting court, emergency arbitration and mediation proceedings. The Hong Kong Legislative Council adopted the draft bill in the form of amendments made to the Arbitration Ordinance (Cap. 609) presented to the Legislative Council in January 2017 (see our earlier blog for a discussion of the draft bill). It is expected that the amendments will take effect later this year while an appropriate Code of Practice for funders is drawn up.

The bill introduces a new Part 10A (ss 98E-98W) to the Arbitration Ordinance, as well as a new section 7A to the Mediation Ordinance. The bill applies equally to domestic and international arbitrations which were unified into a single regime in 2011. The amendments clarify that third party funding of arbitration and mediation seated in Hong Kong (or using services provided in Hong Kong for arbitrations taking place elsewhere) is not prohibited by the common law doctrines of maintenance and champerty.

According to the report of the Legislative Council, the bill does not apply to court litigation, and its funding by third parties therefore remains prohibited in Hong Kong, save for court proceedings related to the arbitration such as challenges and enforcement. This may encourage parties with a Hong Kong nexus to opt for arbitration over litigation.

The term ‘third party funder’ in Hong Kong has a broad meaning as it is not limited solely to professional funders, but also includes any party who does not have an interest in the proceedings (Arbitration Ordinance s98J), save for legal service providers who act for any of the parties involved in the arbitration (Arbitration Ordinance S.98G(2)) to avoid a conflict of interest. This means a potentially very wide of pool of funders, including lawyers and law firms who can now establish their own funding arms, as has been seen in the USA and mainland China. The amendment should enable claims which may otherwise not be brought due to financial constraints, and so facilitate access to justice.

Third party funders in Hong Kong will need to adhere to a Code of Practice. The Hong Kong Secretary for Justice is entitled to appoint an advisory body to draw up such a code. While the code is yet to be finalised, it is expected to include provisions relating to confidentiality, conflicts of interest and internal procedures of third party funders.

The bill also provides that a funded party must disclose to the other party in the proceedings, as well as the relevant court or tribunal, that it has a funding agreement in place, the name of the funder and the stipulated end point of any funding arrangement.

The approval of the bill is a welcome move, and further enhances Hong Kong’s competitive position as a leading international arbitration centre.